Ackman's Hedge Fund Buys Berkshire Hathaway's Former Favorites
Billionaire Bill Ackman's Pershing Square Capital Management has acquired Visa (V) and Mastercard (MA), two financial stocks that Warren Buffett-led Berkshire Hathaway sold in Q1. This move is significant as it highlights a difference of opinion between the two investment gurus.
The hedge fund believes these companies are among the world's highest-quality businesses, citing their 'tollbooth business models' that enable global commerce and earn fees for processing transactions. They also have powerful network effects, with Visa and Mastercard connecting billions of consumers to hundreds of millions of merchants and thousands of financial institutions.
Pershing Square estimates that card-payment volume accounts for half of addressable consumer spending worldwide, leaving room for growth even in developed economies. The hedge fund also sees value-added services like fraud prevention and merchant analytics driving revenue growth at a rate twice to three times faster than payments operations.
The key catalysts for stock prices are valuations and earnings growth. Pershing Square believes Visa will report 16% annualized EPS growth over the next three to five years, while Mastercard is expected to do better with an 18% yearly gain.